7/22/2002 @ 12:00AM

The International 500 - Introduction

Our annual survey of the 500 foreign corporations that generated the most revenues in their latest fiscal year.

Whether in New York, Tokyo, Beijing or Frankfurt, equity investors found few havens over the past 12 months. From May 2001 to May 2002 the total market capitalization of the Forbes International 500–the largest foreign companies measured by revenues–fell to $7.2 trillion versus $8.5 trillion one year earlier. That’s a decline of 15%, matching the drop in the S&P 500.

 Events such as the Sept. 11 attacks, the Enron and Global Crossing scandals, and the sharp drop-off in demand for computer and telecommunications equipment reverberated around the globe. In 2000, for example, Forbes International 500 companies Hitachi, LM Ericsson, NEC, Nokia, Siemens Group and Toshiba posted aggregate profits of $15.5 billion. In 2001 these six firms alone lost $6.6 billion.

 Even worse than such big losses are big profits that aren’t real. The wave of accounting scandals has given investors around the globe a greater appreciation for honesty, transparency and uniformity in corporate accounting. On p. 166 we look at the efforts being made toward putting all companies–no matter where they’re based–on the same accounting standards.

 The current market chaos is, in many ways, no different from other downturns in creating opportunities for value investors. Based on estimated 2003 price-to-earnings ratios, Korea’s surging market sells for 8 times expected earnings and China has an estimated P/E of 11. Throughout our International 500 coverage we profile companies that seem attractive on a fundamental basis. The first example, on p. 128, is Electrolux of Sweden.

 Few places in the world are more chaotic than Israel, where stocks sell for an average of 16 times estimated 2003 profits and some solid technology companies trade way below recent highs. The potential risks and rewards of investing in Israeli technology companies are weighed on p. 162.

 The easiest way for Americans to buy individual foreign companies is via American Depositary Receipts (ADRs), as we explain on p. 126. And for those who prefer the diversity of mutual funds, on p. 164 we look at the growing demand for Exchange Trade Funds of foreign indexes.